| Gujarat Fluorochemicals Limited | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL's ratings on the bank facilities and commercial paper of Gujarat Fluorochemicals Limited (GFL) continue to reflect its strong market position in the chemicals, wind turbine manufacturing, and cinema exhibition businesses; healthy operating efficiency of the chemicals and cinema exhibition businesses, and a strong financial risk profile. These strengths are partially offset by exposure to regulatory changes, large working capital requirement in the wind turbine business, and susceptibility to inherent volatility in the chemicals and cinema exhibition businesses. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of GFL and its subsidiaries, Inox Leisure Ltd (ILL; 'CRISIL AA-/Stable/CRISIL A1+'); Inox Wind Ltd (IWL; 'CRISIL A-/Positive/CRISIL A2+') and its subsidiaries; Inox Renewables Ltd and its subsidiaries; Inox Infrastructure Ltd (wholly owned); and other critical joint ventures and subsidiaries. The companies are collectively referred to as the GFL group. In addition to common promoters and shareholding structures, they are strategically important to GFL. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong market position: The GFL group is the largest polytetrafluoroethylene (PTFE) manufacturer in India, and among the top four globally. It is also a leading manufacturer of hydrochlorofluorocarbon (HCFC), which is used in refrigeration and air conditioning, among other industries. It is the second-largest player in the film exhibition business and among the leading wind turbine manufacturers in India. A robust market position along with diversified revenue streams should continue to support the business risk profile. * Healthy operating efficiency: The operating margin for the chemicals business improved to 28.7% in the first-nine months of fiscal 2019 from 27.6% in the corresponding period of the previous fiscal. The business is forward-integrated into manufacturing PTFE and backward-integrated into manufacturing HCFC, anhydrous hydrogen fluoride, chloroform, and chlorine. This reduces dependence on external sources for raw material, and helps improve the operating margin and capacity utilisation. Profitability in the chemicals business is further supported by increased contribution from value-added products and speciality fluoro-polymers. In the cinema exhibition business, revenue contribution from advertisement increased to 11.3% in the first-nine months of fiscal 2019 from 6.5% in fiscal 2014; contribution from food and beverages rose to 25.8% from 21.3%. Driven by healthy non-box-office revenue, the operating margin was 16.6% in fiscal 2018 and remained healthy at 17.5% in the first-nine months of fiscal 2019. High operating efficiency is likely to be sustained on the back of significant contribution from non-box-office revenue. * Strong financial risk profile: The gearing was low at 0.34 time and cash and cash equivalents were healthy at Rs 686 crore, as on March 31, 2018. Substantial cash accrual is likely to continue to lead to comfortable debt protection metrics, with expected interest coverage and net cash accrual to total debt ratios of above 6 times and 0.4 time, respectively, over the medium term. The film exhibition business should generate sufficient cash flow to fund organic expansion plans, while improved cash accrual in the chemicals business would support the overall credit risk profile. The financial risk profile is likely to be sustained over the medium term. Weaknesses: * Working capital-intensive operations in the wind turbine business: Operations in IWL had been working capital intensive under the feed-in-tariff regime. There was significant receivables build-up due to delays in commissioning or signing of power purchase agreements (PPAs). The situation was compounded by an abrupt halt on signing PPAs by distribution companies after the advent of wind auctions in February 2017. Receivables improved significantly over the 18 months through December 2018. The company has realised a large part of its receivables and also reallocated turbines against some of the receivables to projects wherein PPAs were already in place. However, sizeable receivables remained pending for more than 180 days as on December 31, 2018. Ability to realise these receivables and rationalise working capital under the auctions regime, as the PPAs are being signed upfront, will remain key monitorables. * Exposure to inherent volatility in the cinema exhibition business: Volatility in profitability inherent in the film exhibition business will continue to affect operations, though the impact will be cushioned marginally by the large scale and increasing contribution from the non-ticketing business. Given high fixed costs, multiplex players will remain dependent on occupancy, which is driven by success of films; occupancy was 27% for the nine months through December 2018, similar to the corresponding period in the previous fiscal. Availability of other forms of entertainment and new properties expose ILL to challenges of sustaining profitability and growth. |
| Liquidity |
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Liquidity is strong driven by expected cash accruals of more than Rs 1,000 crore per annum in FY19 and FY20 and cash and cash equivalents of Rs 686 crore as on March 31, 2018. The company has long term repayment obligation of around Rs 350 crore each in fiscals 2019 and 2020, and capex of around Rs 500 crore per fiscal. Cash accrual and cash and cash equivalents should be sufficient to meet repayment obligation and to partly finance capex and investment requirement in various subsidiaries and joint ventures. With a gearing of 0.34 time as on March 31, 2018, there is sufficient headroom to raise additional debt for capex, if required. |
| Outlook: Stable |
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CRISIL believes the business risk profile will continue to be supported by robust performance in the chemicals and cinema exhibition businesses. The strong financial risk profile is likely to be sustained, driven by substantial cash accrual and healthy debt protection metrics. |
| About the Group |
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GFL is the flagship company of the GFL group, which has diverse business interests including chemicals, wind turbine manufacturing, cinema exhibition, and wind power generation. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^ USD 0.588 crore converted at 69.1488 INR/USD @ Interchangeable with short-term debt to the extent of Rs 570 crore $ Interchangeable with letter of credit and bank guarantee to the extent of Rs 955 crore & Interchangeable with overdraft facility to the extent of Rs 435 crore * Interchangeable with PCFC facility to the extent of Rs 595 crore | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - List of entities consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^ USD 0.588 crore converted at 69.1488 INR/USD @ Interchangeable with short-term debt to the extent of Rs 570 crore $ Interchangeable with letter of credit and bank guarantee to the extent of Rs 955 crore & Interchangeable with overdraft facility to the extent of Rs 435 crore * Interchangeable with PCFC facility to the extent of Rs 595 crore ~~ USD 7.43 million converted at 69.8350 INR/USD ~ USD 6.62 million converted at 69.8350 INR/USD | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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